Volatile Stock Market Action And Crude Oil Prices Point To Recession In US
$OIL
Economists work hard to create models that forecast economic growth. Market analysts often take a more simplified approach and use the price of Crude Oil and stocks as reliable markers.
Crude Oil is the fuel of the economy and has been for more than 100 years.
China’s rapid economic growth over the past 25 years coincides with a 350% increase in demand for Crude Oil. China’s slowdown will now result in decreased demand for Crude Oil.
This relationship is obvious, but what is overlooked is the relationship between market prices and future expectations.
In the stock market, participants buy companies based on expected future earning and growth. An investment in a company is not a reward for past accomplishments, it is a vote on the future. The same true of commodity prices.
The deep dive in Crude Oil and other commodity prices over the past year indicate a recession is likely before the end of this year. Lower prices indicate demand is expected to decrease. This decreased demand is coming from slower growth in China, and from slower growth in other countries around the world, including the US.
Recent economic data indicates the slowdown in the US is happening.
The recent gains seen in GDP have been driven by a buildup in inventory rather than by increased consumer sales. This trend is likely to be reversed in 2-H if retailers seek to reduce inventory levels.
Stock prices are now trending lower and confirming the drops in commodities prices. For now, market prices in Crude Oil and stocks point to a slowdown. When unemployment starts to rise one again, economists will then agree with traders that bad news actually looms.
| HeffX-LTN Analysis for OIL: | Overall | Short | Intermediate | Long |
| Bearish (-0.34) | Bearish (-0.41) | Bearish (-0.48) | Neutral (-0.14) |
Stay tuned…
Paul Ebeling
HeffX-LTN
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